2007/09/20

3 Causes of the instability of authoritarian regimes

3.1 Instability

The cause of instability of authoritarian regimes is the lack
of legitimacy and primitive structure of the state.

One option to fight the challenges of instability in authoritarian
regimes is the closed, or managed, democracy, when de jure
democratic institutions and procedures are retained, but the ruling
elite establishes principles of the continuity of power, controls
elections and determins their results. This is a dead end (see
Italy, Japan, Mexico).

Another option is the formation of totalitarian
structures. Authoritarian states want their citizens to stay aside of
public politics, avoid demonstrations and rallies, not contact foreign
press, etc. On the other hand, totalitarian regimes control the
private life of citizens. A messian-type ideology is typical for
totalitarism.

3.2 Mechanisms of the fall of authoritarianism

Crisis of legitimacy, lack of trust (even among police and
army). Opposition can use simple slogans (re-distribution,
nationalism) which are difficult to refute.

Nothing guarantees, however, that the fall of an authoritarian regime
results in the creation of stable democracy. External influences are
important here. In Eastern Europe: influence of the EU, chances to
become a member of EU. In Latin America: influence of USA.

4 The oil curse.

4.1 Resource wealth and economic development.

There is a reverse proportion between long-term economic growth and
the amount of natural resources.

Abundance of natural resources gives the ruling classes a way to
increase budget not caring about the increase of taxes, that is
without a dialogue with the society. Since only such dialogues allow
to build the rules of the political play and launch modern mechanisms
of the economic growth, there are less limitations on corruption
and arbitrariness in the countries with rich resources.

The distribution of profit in resource-rich countries depends on the
experience in bribery, not on the market mechanisms.

Resource wealth increases risks of political instability, connected
with the struggle for the re-distribution of profits.

A typical feature of resource-rich countries is lack of attention
towards problems of education. Probably, due to the specific demand
for work force in the mining companies and other companies producing
raw materials.

Highly volatile prices on raw materials are a problem for the economy
of such countries.

4.2 Specific features of the oil market

When most market players believe that the oil prices will stay high
for a short period only, they will stay so. When the opinion prevails
that the high prices are a new stable level for a long period, the
prices will fall

4.3 Regulation of the oil market in the XX century

Market was split in 1928 by 7 largest corporation -- agreement
of Achnacarry. Cannon boat diplomacy, exploitation of less
developed countries.

1960 -- OPEC.

1974 -- oil crisis, growing prices. Decrease of oil consumption in the
importing countries led to the decrease of demand in 1981 and the
sharp fall of prices in 1986.

4.4 Challenges linked with the fall of the raw materials prices: Mexico and Venezuela.

Mexico. Was a closed democracy in 1970-1990. Share of the state
expenses in the GNP was growing. The foreign debt increased. When the
prices fell -- tax growth, budget expenses cut, currency devaluation.

Venezuela. Stable democracy. Control over the growth of the national
currency rate. Populists come to power in 1974. By 1989 Venezuela has
84% inflation and the foreign debt equal to 54% of GNP. Labor
productivity falls. Defaulted foreign debt. Chavez comes to power
in 1992.

4.5 Response to the threats of the prices volatility

Hedging and forward contracts are political risks for the
government. Two kinds of stabilization funds: protection of the
national economy from the oscillation of prices and the fund for
future generations.

In the non-democratic countries there is high risk of corruption in
the stabilization fund management and/or ineffective investments.

Stabilization funds are an easy target for the opposition in
democratic countries. Even in Norway, under effective democracy, a
coalition in power never won the elections since the stabilization
fund was created.

5 Crevices in the foundation. USSR in early 1980s

5.1 Ineffectiveness in stability

Social stability is the typical feature of the Brezhnev's epoch. 7 out
of 9 mass protests against the regime took place in the first years of
Brezhnev's rule. In 1969-1977 there were none. In the times of
Khrushchev, the government used armed troops against the discontent in
8 cases out of 11. In the years of Brezhnev's rule -- only in 3 cases
out of 9. Since 1968 till Brezhnev's death weapon was never used
against the protesters.

Mass construction of living buildings (instead of earlier "communal
apartments") and personal garden-plots (dachas) for
growing vegetables and fruits resulted in loss of the total control
over the personal life of the citizens.

Changes of the information field. In 1950 only 2% of Soviet people had
radio receivers with short wave bands. By 1980 -- 50%. From a KGB
report of 1976: "A significant share of the persons who committed
politically harmful misdemeanours were under foreign ideological
influence. The main factor was propaganda by radio. 80% of
university students and 90% of undergraduate schoolchildren listen
foreign radiostations regularly (32% of univesity students and 59% of
schoolchildren listen them 1-2 times a week and even more often." A
report of 1970: "5 years ago most of illegal printed materials were
ideologically vicious fiction books, but now we see widely popular
political documents and programs. Since 1965 we were aware of about
400 books and articles which criticize the historical experience of
building of communist in the USSR, revising the politics of the CPSU,
offering oppositional political programs."

5.2 Growing problems and wrong solutions

1930s-1950s -- redistribution of labour resources from rural areas to
the cities. In 1960s the flow of labour force decreased.

1965: more rights given to the factories and other enterprises, the
salary now depends not only on the personal input, but also on the
financial results of the whole enterprise.

Ineffectiveness of Soviet system: USSR produced 8 times more iron ore
than the USA, made of this ore 3 times more cast iron, which was
processed into 2 times more steel. From this steel the same amount of
tools and machines was produced. Consumption of raw materials and
energy per a production unit was 1.6 and 2.1 times more
correspondingly.

After the chemical weapons were prohibited, the factories involved
into this production had to be used somehow. Millions of people became
victims of food contaminated with insecticides and other poisons.

The command system of management created in 1930s-1950s was based on
fear of severe punishment. After Stalin's death in 1953 the discipline
quickly falls.

Alcohol. The share of alcohol consumed in socially controlled places
(restaurants, caffees, etc.) was 5.5% vs. 50-70% in developed
countries. In 20 years consumption of alcohol grew 2.2 times, number
of crimes committed under alcohol intoxication grew 5.7 times, the
number of people suffering from alcoholism -- 7 times.

Loss of the effectivity of the communist ideology. The
ideological dogmata were not taken as seriously as before. They were
either dismissed or ridiculed out. Deintellectualization of the CPSU
led to gerontocracy.

5.3 Problems of the food supply

Socialism is the economy of deficit. Since late 1960s
shortages grow. In late 1980s shortages turned into a crisis.

The problem of the food supply of the cities was faced by the tsarist
government before the WWI. The revolution was a corollary. Bolsheviks
solved the problem with prodrazvyorstka (food expropriation). In the
late 1920s the problem became important again. Stalin's solution was
chosen: dekulakization, collectivization, prodrazvyorstka.

In Europe the period of the industrial growth was preceded by the
agrarian revolution (sharp growth of the effectivity of the
agriculture). In Russia, the agrarian revolution never happened, but
the agriculture grew steadily and the country was the largest exporter
of food.

Collectivization and deprivation of kolkhoz members of their right to
choose the place to live and work, nonfree non-payed work were equal
to restoration of serfdom, but now the state from one of the
exploiters became the only one. Hence, the labour ethics distorts:
work becomes a burden to avoid.

Social position of the peasants was intentionally low. Annual income
of a kolkhoz member was close to a monthly salary of a factory
worker. The socialist model created motives for the smartest and the
most energetic peasants to move to a city, in spite of the bans to
do so.

5.4 Food shortage: strategic challenge

Options: additional investments in the traditional agricultural
regions, Nechernozemye (non-Black Soil Belt); developing of virgin
lands; liberalization and de-collectivization. The first option was
proved to be ineffective later in 1970s-1980s. The second option was
chosen, in spite of the predicted instability of the harvest.

After 1958 growth of harvests stops. In 1963 the harvest was
significantly lower than before. In 1953-1960 the reserves of grain
decrease. Capital expenditures grow. Social degradation led to the low
effectiviness of agriculture. Since 1971 till 1985 capital
expenditures were 579.6 billion rubles. The result was zero.

5.5 USSR as the largest food importer

Contrary to the market economy, in the socialist economy it was
impossible to raise the retail prices, it would be a violation of the
social contract between the state and the people. The rulers, caring
primarily of their own security, rejected the use of terror, typical
for the earlier years and the fear of the state decreased among the
general population. Now the neglection of social programs led to the
conflicts, like in Novocherkassk in 1962. From a KGB order: "In the
first half of 1962 7705 anti-Soviet leaflets were registered, two
times more than in the first half of 1961. After the prices were
raised, the flow increased. Only in June there were 83 occasions of
different anti-Soviet leaflets and graffiti. In the same period, more
than 300 anti-Soviet anonymous letters received by the party and
Soviet organizations and newspapers were reported to KGB. In these
letters, people express their discontent with the low quality of life,
and call to mass protests, strikes, rallies, boycotts demanding for
the increase of salary and decrease of prices."

Eventually, the prices grow even in the socialist economy. In 1981-85
prices on bread grew by 6.6%, on potato -- by 7.9%, on cotton fabrics
-- by 17.9%, on TVs -- by 10%. In 1979 prices on luxury goods grew: on
gold -- by 50%, on silver -- by 95%, on fur -- by 50%, on carpets --
by 50%, on cars -- by 18%.

Non-equal and unjust distribution of goods: in Moscow and Leningrad
97% of people bought food in the state shops (the prices there were
lower than on the markets where kolkhoz members sold their product),
in the capitals of Soviet republics -- 79%, in oblast centres --
36%. The higher was the income of a family, the better access to
cheaper food they had.

Grain supplies to the socialist countries. Only in 1963 the grain
crisis forces the USSR to stop the supplies to the socialist countries
and to buy wheat abroad. One third of the gold reserve was spent on
wheat (372.2 tons of gold). In 1965 -- 335.5 tons more. In 1907-1913
Russia was the largest exporter of grain (45% of the world market). By
1980s USSR became the largest importer (16.4% of the world
market). There is not enough gold to buy grain and the industry is not
competitive to increase export of machines. Hence, USSR takes
credits.

5.6 Oil of the West Siberia. Illusion of rescue

Year

Production of oil in the Western Siberia, mln.tons

1965

1

1966

2.8

1967

5.8

1968

12.2

1969

21.3

1970

31.4

1971

44.7

1972

62.7

1973

87.7

1974

116.4

1975

148.0

1976

181.7

1977

218.3

1978

254.1

1979

283.5

1980

312.6

1981

334.3

1982

352.9

1983

370.1

1984

377.9

Increase of oil production and the growth of oil prices in 1973-74 and
in 1979-81 gave a chance to stop the food crisis, to increase import
of machines and tools, consumers goods, provided the financial base of
the arms race, allowed to achieve parity of nuclear weapons with the
USA and to start the campaigns like the war in Afghanistan.

Being certain that the high prices on oil are stable, USSR did not
create any financial reserves and borrowed additional foreign
credits. In 1979-1981 three successive low harvests result in the
deficit of the foreign trade. In 1980s oil prices stop
growing. Shortage of consumer goods increases, monetary emission
grows, retail prices grow. Shortage of food is compensated with their
lowering quality (like decreasing percentage of meat in sausage,
etc.). Since mid-1970s about one half of the trade growth was produced
by lowering quality of goods and increased prices. The report was
prepared and given to the chairman and the vice-chairmen of the
Council of ministers, but it was confiscated and destroyed on the next
day.

In 1982 the government of Poland asks for assistance. in 1980-81 the
financial aid was 4 billion rubles. In 1982-83 an additional 2.7
billion rubles credit was issued.

5.7 Falling oil prices: the last strike

Autumn 1981: oil supplies to the Eastern Europe are cut by 10%. In
1985 oil production begins to decrease. Supplies to the Eastern Europe
continue, but the export to the West decreases. In 1984 the Academy of
Sciences predicts stabilization of the oil prices, but in 1985 they
plunge.

5.8 Dissolution of the USSR: unexpected and logical

In the 1970s-80s nobody foresaw the fall of the USSR. The opinion of
the daemonic omnipotence of CIA and its role in the fall of the USSR,
so widespread in modern Russia, is a mirrored reflection of the point
of view prevailing in Washington that in the late 80s-early 90s the
CIA demonstrated extreme incompetence in everything related to the
USSR and Russia.

The second version of what caused the dissolution of the USSR is the
intensification of the arms race, imposed by Reagan. It is impossible
to estimate the real scale of military spendings in the USSR, the data
are irreconcilable. Besides, it is not clear whether the prices on
military equipment were based on the economic reality in any
degree. To understand whether this version is valid, one should
understand how the decisions were made in the USSR. The evidences that
the USSR increased military spendings since early 1980s are not
convincing enough. The volume of military production was not
determined by the necessities and military plans, but by the available
industrial units.

Gorbachev's aide Shakhnazarov once asked: "Why should we produce so
much weapons?" The General Staff commander Akhromeyev replied:
"Because we have built first class factories, not worse than what the
American have. Would you order them to produce tin pans?"

From the military and strategic point of view, the Western experts who
monitored the production of tanks in the USSR, could only conlude that
the Soviets plan an offensive war. In reality, the occasion behind
this decision was the certainty that should the war with the USA
begin, Americans will quickly raise the production of tanks, and the
losses of Soviet tanks in the first stage of war will be extremely
high. The main cause, however, was that the factories were built and
the workers must have job to do. The same happened to the SS-20
missiles. The decision to produce them inevitably led to the reaction
of the West -- placement of missiles in the Western Europe and
increase of the threat to the USSR. After all, USSR had to agree to
cut the number of missiles, when huge resources had already been
spent.

By 1985 the roots of a deep crisis were already prepared in the
USSR. The Soviet authorities were still sure in the stability of the
Soviet economy. When the new leaders came to power, it took about
three years to understand the situation. But it was already too late.

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